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Total return for commercial property in 2011 was
8.1%, according to the IPD UK Monthly Index. Capital growth slowed to 1.2%,
while income return amounted to 6.8%.

Capital values fell for the second consecutive
month in December, by -0.1%, making growth just negative overall for the last
quarter of 2011. Total return, which stood at 0.5% for all property in December,
was down in all three market sectors.

Phil Tily, managing director of the UK and
Ireland, said: “While growth for the year remained positive, the outlook for
2012 is less than ideal. During the last three months of the year, as the
Euro situation worsened and the threat of recession increased, returns
tailed off considerably. The retail sector was the hardest hit in Q4, seeing
values fall by -0.3%, whilst industrial values fell by -0.2%. Office growth
remained positive, at 0.2%, but even this represented a considerable slowdown.

“Hopes were high at the beginning of 2011 - -
sectors such as shopping centres and City offices were expected to perform
well - and by mid-year talk was about a recovery in the secondary sector.
However, the worsening situation in 2011 has seen expectations cut, and 2012 may
be a year of re-evaluation in regards to pricing levels, and a heavy
concentration on income.”

City office worries

For the first time in 27 months, City offices saw
their values fall, by -0.1%. After losing about 50% of their value during
the 2007-2009 period, they recovered approximately 35% until November
2011.

“Investor demand has remained strong over the
last year, but yields had a negative impact in November/December, as investor
sentiment was hit by the overall uncertainty in the market and reduced prospects
in the financial services sector. Rental growth, though still positive at 0.3%,
has been disappointing compared to expectations.” continued Tily.

“In the West End, where the market is a lot
tighter, and where supply is more restricted, capital growth remained strong in
December, at 0.7%.”

Retail falls

“Challenges in the occupier market have been
noticeable in the retail sector, where rental values continued to fall, -0.1%
for December, and -0.9% for the year. This, with a further softening of yields,
has seen values fall -0.2% in December,” added Tily.

The much talked about regional variations in
performance are especially evident amongst shopping centres, where December
returns remained positive in London and the South, at 0.4%, but with a -0.5%
return in the rest of the UK.

Outside of Central London, standard retail units
across the UK recorded either flat or negative value movement for the
month. The hardest hit areas, the South West, Wales and Yorkshire and
Humberside, saw values fall by -0.7%, -0.7% and -1.0% respectively